BLOG: Out of date and left behind

Written by Adam Cadle

11/12/2015

Chancellor George Osborne’s bombshell of scrapping compulsory annuitisation caused shockwaves through the industry.

Many savers rejoiced at the thought of being able to cash in their pension pots and spend them as they so wish (just don’t mention the Lamborghini!), something which I am totally for if ‘common sense’ comes into the reckoning. However, the ‘gutted’ feeling is normally always part of reform and change, and on the other side of the ballpark one has those savers who purchased an annuity a year or a couple of years before the freedom and choice reforms were implemented and did not have the opportunity to cash in, in the same way that Osborne proposed.

It’s a little bit like Apple updating its iOS systems, iPads and iPhones thus leaving a group of ‘out of date’ customers locked into a two year contract for example. Osborne’s updating of the UK pensions system, whether a good thing or not, would have left many annuity purchasers aggrieved at being subject to compulsory annuitisation.

Entering the fray however is the secondary annuities market, a piece of legislation which I am particularly excited about for the industry, if designed correctly. Despite it being delayed until 2017, to ensure a robust package is in place to support consumers, I believe it will be extremely important for the industry to have as an option.

The Treasury announced this week that some investors will be required to take advice before they can sell their annuities in the secondary annuity market. A sensible decision indeed, and furthermore the Treasury will have 11 delegated powers to determine what a relevant annuity is, including what the threshold should be, how it should be calculated and whether it should take into account an individual’s circumstances.

There have been concerns voiced that the high cost of creating a secondary annuity market may greatly reduce the value available to annuitants. This could be a problem and something which the industry will have to address but one which can be overcome.

Why shouldn’t existing annuity holders have their own ‘freedom’ post freedom and choice to be able to sell their annuity income if they so wish? Non-existing annuity holders now have their own freedoms to cash in their pots if they so wish, so existing annuity holders should have a system giving them a degree of ‘freedom’. Freedom which could allow them the opportunity to buy the latest up to date iPhone or iPad perhaps, but that may not be sensible financial spending and planning.